Wednesday, May 23, 2012

Funny (Yet Authentic) Money

I'm constantly amazed at how reading, even reading a work of fiction, can spur learning about pieces of real knowledge: science, history, etc. Stuff you didn't know that you didn't know, except that some fictitious setting brought it up.

That's what happened to me recently as I was reading Raymond Chandler's The Long Goodbye. I'm not going to give away any major plot details here, except to say that detective Philip Marlowe comes into possession of a $5000 bill.

A $5000 bill? I had never heard of such a thing.
Here's what Marlowe has to say about it, having first referred to it as "a portrait of Madison":

...A portrait of Madison is a $5000 bill.

It lay in front of me green and crisp on the table top. I had never seen one before. Lots of people who work in banks haven't either... If you went to a bank and asked for one, they wouldn't have it. They'd have to get it for you from the Federal Reserve. It might take several days. There are only about a thousand of them in circulation in the whole U.S.A.

My interest was captured. Not so much in the mystery Marlowe was investigating, but rather in this piece of American history. So I decided to do a bit of research.

The $5000 bill did indeed exist as American currency at one time. Lots of giant denominations did. Whereas currently-issued currency maxes out at the $100 bill, the government used to issue bills worth $500, $1000, $5000, and even $10,000 and $100,000! These started to be issued in the forms most like our modern currency in 1929 (some of these denominations existed before then, but they bore even less resemblance to modern US currency, being of different physical size, besides being worth more). The government stopped printing these larger-denomination bills in 1945, so even by the time The Long Goodbye was published in 1953, they were pretty scarce. When Marlowe suggests that there were only a few thousand $5000 bills in circulation, he was no doubt correct. Wikipedia says that only 342 $5000 bills are known to exist as of 2009.

Of course, there has been quite a bit of inflation since 1953. I looked up a coupleof websites, and determined that $5000 in 1953 would translate to more than $40,000 today. Yet the US government officially discontinued all denominations larger than $100 in 1969 (meaning that, at that point, the Federal Reserve wouldn't release those bills, most already not having been printed for more than 20 years, even to the banks). Why hasn't denomination size kept pace with inflation?

There are a few reasons. Even back then, counterfeiters tended to put more time and effort into printing fake currency at larger denominations rather than smaller ones. The idea, as I understand it, is that they try to pass the large fake bill pretty quickly, and get it out of their hands in favor of a wad of perfectly legal currency. Printing bills in enormous denominations would obviously make this job easier for criminals. Another reason is that, even today, the average person doesn't make so much money as to have much need to carry even a $500 bill around (let alone $5000 or larger). These bills were mostly used by banks to facilitate trade between banks, and this is now done by other means. Arguably, with the advent of so much economic activity being done electronically, there is even less reason today to use large denomination currency than there was in 1969. If we want to spend a giant sum of cash, the last thing we're likely to do is go to a physical store with a $5000 bill in our wallet and pay with that. We'd use a check or debit/credit card instead.

If you do happen to come across a $5000 bill today, it's technically still legal currency, and you could use it to buy $5000 worth of merchandise at the store. However, I strongly recommend against it. Not only would you get a few odd stares from the cashier who's almost certainly never seen one before, but that bill would be worth much more than $5000 to a private collector. If nothing else, sell the thing on eBay!